Lala resurgent: how the music service got its groove back

Radically changing the business model is usually a sign that a startup is near …

You may know Lala as the music streaming service that recently struck a deal with Google to provide music in its search results. Or you may know it as the company that sells insanely cheap 10� music streams in addition to its MP3 store. Both of these are recent innovations from the company—Lala has gone through numerous changes since its humble beginnings as a CD swapping service in an attempt to follow the changing tastes of the online consumer, and it seems to have found a second life with a new business model.

Swapping... CDs? With other people?

Lala first landed on the scene in 2006 as a way for Internet users to legally trade and share music by swapping physical CDs. For $1.75 per trade, a user could send out something he didn't like anymore and get something he wanted in return. Lala acted as the middle man, managing the lists of what people had and what they wanted; it also facilitating the trades by sending out special mailers. The company kept $1 for each trade and paid 75� for shipping.

Lala public relations director John Kuch told Ars back in 2006 that the idea "sprung out of an idea of what the record store used to be." Users could browse the CD collections of others and socially network with one another in order to build a sort of Internet record store community.

And, out of pure goodwill, Lala even set aside 20 percent of its revenues for artists—artists never make money in the sale or trade of a used CD otherwise, but one of Lala's founders, Bill Nguyen, said that it seemed only fair to give musicians a cut when someone discovered their work.

This idea, in retrospect, was pretty awesome... except that consumers in general were beginning to migrate away from the CD (new CD sales had been tanking for years already) and there was an increasing focus on online music for sharing, buying, and discovery.

Getting into the MP3 game

That's why Lala decided in 2007 to shift its focus from CD swapping to MP3 uploads from users and offering free music streams from select songs and albums. This was before streaming became popular online, and Lala was a bit ahead of its time in this respect.

Users could scan their hard drives for music and upload songs to a "digital locker." The music then became available from anywhere as long as the user had access to his or her Lala account. People could even manage playlists and fill their iPods directly from the site. Streams, by default, would be offered as 30-second music samples unless Lala had a licensing agreement with the music label in question. In that case, full streams were available to anyone and everyone who wanted to listen.

At the time of the MP3 service launch, Lala had struck a deal with Warner Music and said negotiations with other labels were "ongoing." That plan apparently didn't work out, because it was only a few weeks later when full streams mysteriously disappeared from the site. Lala told Ars at the time that the service went offline temporarily to deal with the overwhelming demand and load on its systems, but the streams never did come back (unless you already owned the album yourself) in their original form.

Lala 3.0

In 2008, Lala decided to rework the streaming idea and added MP3 purchases. Registered members of Lala could stream full songs from their own libraries once free of charge—after that, they had to pay 10� for unlimited streaming rights to that particular song. Those songs couldn't be downloaded or played outside of the browser, but DRM-free MP3s could be purchased for the same price as pretty much every other music store on earth—these days, those songs go for between 69� and $1.29.

The 10� streams generated many skeptics upon launch, but that system is still in place today and seems to be fairly successful. Lala has just introduced an iPhone app (not yet available on the App Store) that pushes these 10-cent streams, indicating that the company is banking on this model to carry it forward. There are now more than 6 million licensed songs available for streaming or purchase on Lala.

Counting on Google

According to the ever-reliable grapevine, Lala recently entered into a deal with Google that will put song previews inline with other Google search results. Those previews won't be full streams—users will be directed back to Lala (or iLike) to listen to the whole song and possibly make a purchase. Lala is undoubtedly counting on Google to help promote its 10� streaming ecosystem.

Whether that actually happens remains to be seen—streaming has become quite popular over the last year or so, and even non-techie users know how to find music they want the legal way without having to pay for it through places like Last.fm. Still, Lala's unique package, which still allows for users to stream their own music libraries wherever they want, might appeal to Google users. And the iPhone app is an excellent way to offer users access to their complete music library on a storage-constrained device.

Even without Google's help, Lala has come a long way in just over three years. Just staying in business would be a notable achievement for most music startups that changed business models so radically, but staying in business and eventually racking up a major deal with Google is even more improbable. Still, it looks like Lala has managed the feat.